FTX Founder Seeks Access to $10M Insurance Policy

Sam Bankman-Fried, the founder and former CEO of cryptocurrency exchange FTX, is asking a bankruptcy judge to allow him access to the company's $10m director and officer liability insurance to pay his legal bills. Bankman-Fried, who is facing a litany of criminal charges including bank fraud and making illegal political donations, has not been found guilty of any crimes. If the judge allows him to access the policy, and the insurance provider determines he is covered, Bankman-Fried could receive a payout linked to FTX before any of the exchange's creditors.

The Official Committee of Unsecured Creditors has objected to Bankman-Fried’s motion, saying any cash he receives would detract from FTX's creditors. However, Bankman-Fried's lawyers argue that he is not explicitly seeking the entire $10m sum available under the insurance plan. The FTX debtors have also raised questions about Bankman-Fried's request, suggesting that if the court lifts the stay on the insurance policy, it should be lifted for all who are eligible to use it, rather than only Bankman-Fried.

Bankman-Fried claimed in December that he had less than $100,000 left in his bank account, and is reportedly funding his criminal legal defense with a gift that Alameda Research, his bankrupt crypto trading firm, made to his father. The full scope of Bankman-Fried's legal bills is unclear, although experts estimate his defense may cost millions.

Director and officer liability insurance typically protects the executives of a company in the event that they are targeted by legal action. The insurance plan exists to protect the company and its directors “in situations where they make honest decisions in the ordinary course of the business," but Bankman-Fried's criminal fraud charges have complicated the matter. Bankman-Fried's lawyers have argued that he should be presumed innocent and allowed to access the insurance to bolster his defense in court, calling the objections "unequal and unfair treatment."

Although Bankman-Fried's push to access the insurance policy could result in a payout, he could still face legal hurdles tied to the policy. Experts suggest that if he is proven guilty, he may be required to repay any funds he received. The insurance providers, Relm Insurance and Beazley Insurance, have not commented on the matter.

Bankman-Fried is facing an October criminal trial in the US District Court for the Southern District of New York. He could spend the rest of his life in jail if convicted on all counts.